Role Of International Trade For Developing Countries Flashcards
What does successful trade provide for developing nations
- source of foreign currency to help a nation’s balance of payments
- positive export multiplier effects
- increased employment in export industries
- falling prices for consumers help to increase real incomes
Risks of overseas trade
- volatile prices
- capital flows are volatile
- rising structural unemployment
- natural resource trap
Issue with primary product dependence
Vulnerable to volatile global prices.
Strategies for reducing primary product dependency and price volatility
- better government
- stabilisation fund / sovereign wealth fund
- higher taxes of natural resource profits
- buffer stock schemes
- diversification
What are buffer stock schemes designed to do
Reduce some of the effects of price volatility although most less developed countries have little or no ability to influence the world prices of their key exports
What are the actions of a buffer stock scheme
- buying of supplies when harvests are plentiful
- selling stocks onto the market when supplies are low
For what commodities do buffer stock schemes work best
For storable commodities
What does the success of a buffer stock scheme depend on
The ability of those managing a scheme to correctly estimate the average price of the product over a period of time
Arguments for a buffer stock scheme
- lower risk of extreme poverty
- more stable incomes for farmers
- macro stability
- self-financing
Arguments against buffer stock schemes
- may not be large enough to have an effect
- causes rising surpluses
- storage costs
- might be better LR alternatives
Alternatives to buffer stock schemes
- mobile technology for farmers
- encourage processing / branding by farmers
- improved basic storage facilities + irrigation
- policies for poorer farmers
